Governments' options to deal with the economic situation are limited due to stretched public finances as a Bank of England policymaker said financial markets are now in a more dangerous situation than during 2008 financial crisis.
BoE policymaker Paul Fisher was quoted as saying on Monday that the euro zone crisis posed the biggest threat to Britain's economy if it resulted in a negative shock which pushed the UK into recession and deflation.
Fisher, who is the central bank's executive director of markets and sits on the Monetary Policy Committee, said that while the situation is in "some ways not as bad" in terms of market stress, it is at the same time potentially "more dangerous".
Fisher said that whereas in 2008, governments had more leeway and cash available to stimulate their economies and bail out banks, today that "sovereign backstop is less clear".
"The policy out is going to be more difficult than it was in 2009, given the current position of the sovereigns."
Concern about the currency bloc's continuing debt woes and its impact on the UK economy was one of the reasons the BoE relaunched its quantitative easing asset buying programme in October with a £75 billion cash injection.
The BoE's quarterly bulletin published on Monday highlighted weak consumer spending as another main reason for Britain's weak economic performance.
The BoE expects inflation to fall sharply early next year as this year's rise in value added tax falls out of the statistics, but Fisher said the central bank may have to rethink its policy action if it does not.
"Even now it is very important that inflation comes down. If it doesn't then we will have to look at the policy stance," Fisher said.
However, he said an escalation of the euro zone crisis that pushed Britain into recession and resulted in deflation still posed a bigger threat than inflation.
"[This is the] bigger risk at the moment than inflation staying at 5 percent."